Corn futures will stay elevated into next year, and potentially hit $6.50 a bushel, Rabobank said, highlighting the La Nina threat to output at a time of buoyant Chinese demand, and restating a “bullish” call on soybeans too.
The bank, noting that “inflation expectations remain high”, a factor which has helped drive fund interest in agricultural commodities to a record high, raised its price forecasts for many contracts, from Paris wheat to New York raw sugar.
However, highlighting in particular a corn market which - thanks to “staggering” Chinese demand and a “structural deficit” in production - was “balanced on the precipice”.
This meant that “even small drops in yield capable of pushing supplies into rationing territory”, at a time of La Nina, over which there are “strong concerns” and has a history, most extremely in 2012, of bring dryness to the US Corn Belt.
‘No margin for error’
The Chicago corn market “has no margin for error and will be supported next year above $5.00 a bushel,” the bank said, raising its forecast for average values in the first three months of 2022 by $0.35 a bushel to $5.10 a bushel.
For the fourth quarter of this year, the forecast was upgraded by $0.20 a bushel to $5.00 a bushel, above the $4.71 ¾ a bushel at which the December 2021 lot was trading at on Thursday.
However, it also saw “price upside risk to $6.50 a bushel” given the production worries, and China’s soaring import demand, which “isn’t a one-off”.
The bank said it expected that China “could import 35m-40m tonnes of feed grain per year through the next decade”.
For soybeans too, China’s “massive import programme”, is helping support prospects for prices, the bank said, lifting its forecast for fourth-quarter Chicago futures to $12.90 a bushel, more than $0.50 a bushel above the level November futures are priced at.
“Soy demand is expected to remain strong in China, amid high pork prices and the broader restocking effort,” the bank said, adding that delays to Brazil’s ongoing harvest, and “limitations” to the area that US farmers will be able to sow with soybeans, in competition with corn, “threaten to raise price risks”.
Rabobank, restating a “bullish call for Chicago soybeans”, also highlighted a “conspicuous absence” of pressure on prices from Brazil’s harvest, and the boost to supplies it brings, noting that farmers had already sold forward large amounts of the crop, to the tune of an extra 20 percentage points.
‘Unprecedented and long-lasting demand’
Overall, with “unprecedented and long-lasting import demand” being generated by China, and demand too spurred by the recovery in the world economy from Covid-19 factors, grain and oilseed exporters “will be stretched”.
And although farmers “will maximise acreage in response… strong harvests will not reflate the grain and oilseeds balance sheet”, but rather contain rationing needs.
Nonetheless, the bank trimmed its forecast for Chicago wheat by $0.05 a bushel to $6.45 a bushel for the October-to-December period, some $0.15 a bushel below the futures curve,
It noted the prospect that wheat production in Australia, where La Nina brings rains to many major grain-growing areas, “will likely be maintained near record levels in 2021-22”, adding that Europe’s crop “appears to be in good shape” – although noting winterkill threats to US and Russian crops.
On soft commodities, the bank was less upbeat, despite issuing price upgrades to expectations for prices of the likes of coffee, cotton and sugar.
For cotton, while the forecast for New York futures in the fourth quarter was raised by 2 cents a pound to 77 cents a pound, that remained behind the 88.13 cents a pound at which the December lot was priced at on Thursday.
The bank highlighted growth in certified stocks of the fibre, while seeing a range of 77-78 cents a pound in the second half of the year as tracking “closer to fundamentals”.
For cocoa, fourth-quarter price forecasts held at $2,500 per tonne for New York prices, and £1.670 per tonne for London values, were also a bit below futures curve, with the bank noting “continued good rainfall” for West African plantations.
“Good production this season and the potential for good production next season will likely keep a sizeable surplus in the market for years to come.”
‘Less tightness ahead’
For raw sugar, a fourth-quarter price forecast of 15.0 cents a pound, while raised by 1.0 cent a pound, remained more than 1.0 cent below the futures curve, reflecting expectations of “less tightness ahead” as European, Russian and Thai production improve.
Meanwhile, for arabica coffee too, an upgrade of 5 cents a pound to 125 cents a pound left the late-2021 price forecast below the 143.70 being priced in to December futures, with the bank noting rising exchange stocks and growth in Colombian output.
The recovery in coffee demand “may take some time in many countries” too.